By Judge Susan G. Braden, who served as Chief Judge and Judge, U.S. Court of Federal Claims (2003-2019); is Jurist-In-Residence, Center for Intellectual Property X Innovation Policy, Antonin Scalia Law School, George Mason University; USPTO Private Patent Advisory Committee; Public Member, Administrative Conference of the United States; and a Member of Washington Legal Foundation’s Legal Policy Advisory Board, and Joshua A. Kresh, Managing Director of the Center for Intellectual Property X Innovation Policy.

Judge Braden and Mr. Kresh are the authors of a forthcoming article the Food and Drug Law Journal will publish in Issue 77:3.

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On April 22, 2022, Senator Elizabeth Warren implored the Secretary of Health and Human Services (HHS) to invoke 28 U.S.C. §1498(a) and “break” pharmaceutical patents to lower drug prices.1 In support of this misuse of executive authority, Senator Warren attached a petition signed by six “public interest” advocacy groups and several law school professors.2 The group of law professors included an author of a 2016 Yale Law Review article on which the letter relied, A Prescription for Excessive Drug Pricing: Leveraging Government Use of Health.3

The Yale article proclaims: “28 U.S.C. § 1498[(a)] permits the government to ‘use’ patents at any time without permission of the patent holder, if reasonable compensation is provided.”4 Not quite. In 1949, Congress amended 28 U.S.C. § 1498 to clarify the parameters of the waiver of sovereign immunity in the event the Government infringed a patent: 

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture. . . For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.5

The first federal appellate court to construe Section 1498(a) held:

Nowhere [therein] is active inducement of infringement or contributory infringement mentioned, either directly or by cross reference to 35 U.S.C. §§ 271 (b) and (c). A waiver of sovereign immunity must be strictly construed. Stated differently, the Government is not to be regarded as having waived its sovereign immunity by implication. Hence, we hold that 35 U.S.C. §§ 271 (b) and (c) are not incorporated by implication in section 1498. It is our view that the Government has agreed under section 1498 merely to assume liability for its direct infringement of a patent; it has not agreed thereunder to assume liability for its active inducement of infringement or for its contributory infringement.6

Thus, if HHS, for instance, induces a generic drug manufacturer to infringe a pharmaceutical patent, Section 1498(a) will not apply. In addition, as a matter of law, should HHS directly infringe a pharmaceutical patent nominally to reduce Medicare and Medicaid costs, Section 1498 (a) also will not apply. This is so because the predecessor to the United States Court of Appeals for the Federal Circuit soundly rejected a medical device company’s Section 1498(a) claim that selling infringing splints was “‘for’ the benefit of the government,” even though their costs were reimbursed under Medicare and other federal programs.7

Notably, the holding stated the government’s “interest in [a] program generally, or fund[ing] or reimburs[ing] all or part of its costs, is too remote to make the government the program’s beneficiary for the purposes underlying § 1498.”8 This reasoning implicitly recognized that if every federal program is deemed to be “for the Government,” there would be no end to cases asserting Section 1498(a)—a statute to be construed “strictly.”9 In addition, Government infringement of a pharmaceutical patent as proposed is “not the type of activity that Congress, by enacting Section 1498(a), intended to cloak with immunity from injunction.”10 In the alternative, the appellate court could find such ultra vires governmental activity to be unconscionable as a matter of public policy, particularly since the effect would be to divest a patent owner of a property right authorized by the United States Patent and Trademark Office without a judicial finding of invalidity.11

The Yale article also naively assumes Government infringement of pharmaceutical patents will be “legally uncontroversial” and “quickly implemented” without considering such conduct would require the United States Court of Appeals for the Federal Circuit en banc to overrule precedent and, even if that happened, a further appeal to the United States Supreme Court would be inevitable.

Furthermore, the Yale article did not consider that the United States Court of Federal Claims rarely adjudicates Section 1498(a) cases. The court’s website reflects that from June 20, 2003 to March 1, 2021, only 90 cases invoking Section 1498(a) were filed; almost all, were dismissed or settled.12 Another relevant statistic the article did not consider was that in the last 38 years, the United States Court of Appeals for the Federal Circuit has considered only four cases where Section 1498(a) damages were awarded.13 Three other Section 1498(a) cases were settled reporting damage awards,14 although there may be a few others.15 The Yale article also did not account for the fact that Government infringement would be ongoing and require pharmaceutical patent owners to file new lawsuits every six years to satisfy the statute of limitations.16 Consequently, the complexity of determining “reasonable compensation” in these cases will subsume the United States Court of Federal Claims’ resources and transform it into a de facto regulatory agency. Finally, the Yale article breezes over the reality that Section 1498(a) damage awards are paid from monies appropriated by Congress to the Judgment Fund.17 Therefore, it is the American taxpayer who will foot the bill for the Government’s infringement of pharmaceutical patents.

Section 1498(a) is no Rx for lowering drug prices.18

Notes

  1. Letter from Senator Elizabeth Warren to Xavier Becerra, Secretary, U.S. Department of Health & Human Services (Apr. 22, 2022).
  2. Letter to Senator Elizabeth Warren, Apr. 20, 2022.
  3. Hannah Brennan, Amy Kapczynski, Christine H. Monahan & Zain Rizvi, A Prescription for Excessive Drug Pricing: Leveraging Government Use for Health, 18 Yale J. L. & Tech. 275 (2016) (“Yale article”).
  4. Id. at 277.
  5. See 28 U.S.C. § 1498(a).
  6. Decca Ltd. v. United States, 640 F.2d 1156, 1169-70 (Ct. Cl. 1980) (emphasis added); see also Zoltek Corp. v. United States, 672 F.3d 1309, 1320 (Fed. Cir. 2012) (en banc) (“The court [in Decca] explained that inducement and contributory infringement are outside §1498(a) because they ‘do not involve the Government’s making or using a patented invention[.]’” (quoting Decca, 640 F.2d at 1170 & n.31)).
  7. Larson v. United States, 26 Cl. Ct. 365, 369 (1992).
  8. Id.; see also Matthew Rizzolo et al., Can They Really Do That? The Specter of Government-Authorized Infringement of Pharmaceutical Patents 8 (Apr. 2020) (Since “Medicaid is primarily run by the states, with complex systems of rebates and reimbursements for prescription drugs, and Medicare provides outpatient prescription drugs through Medicare Part D private insurance[,]” the federal government’s role in these programs is “indirect.” Therefore, “any use of § 1498 would likely rest on uncertain legal ground”).
  9. Decca Ltd., 640 F.2d at 1169-70.
  10. Carrier Corp. v. United States, 534 F.2d 244, 250 (Ct. Cl. 1976).
  11. See 35 U.S.C. § 282(a), (b)(2) (reflecting congressional intent that all patents are presumed to be valid, unless a federal court determines otherwise); see also Restatement (Second) of Contracts § 178 (Am. L. Inst. 1981) (When a Term Is Unenforceable on Grounds of Public Policy); see also U.C.C. § 2-302(1) (“If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”).
  12. See https://www.uscfc.uscourts.gov/opinion-search (June 20, 2003, is the earliest date on the website of the United States Court of Federal Claims issuing a Section 1498(a) opinion.).
  13. See FastShip, LLC v. United States, 892 F.3d 1298, 1310 (Fed. Cir. 2018) (affirming a $7,117,271.82 award, calculated on a base of “the cost of the elements of LCS-1 covered by the [Patents-in-Suit] as of the date of the license” at a 3% royalty rate plus interest); Paymaster Techs., Inc. v. United States, 180 F. App’x 942, 944-945 (Fed. Cir. 2006) (affirming $55,923,969.47 award, calculated on a base of postal money orders, determined, but not reported by the parties, at 3.5% royalty rate); Gargoyles, Inc., 113 F.3d at 1572 (affirming damage award (amount not reported) calculated on a base representing the bulk of B/LPS units acquired by the Army at a 10 percent royalty and a 50 percent royalty on a small portion of the of the contract representing the development phase); Hughes Aircraft Co. v. United States, 140 F.3d 1470 (Fed. Cir. 1998), on remand aff’g 86 F.3d 1566 (Fed. Cir. 1996) (affirming an award of $3.577 billion calculated on a royalty base of “total aircraft cost,” i.e., the total procurement cost, including payload costs, to the government for 81 aircraft at a 1% royalty rate determined by comparing three other Hughes license offers).
  14. Honeywell Int’l, Inc. v. United States, 114 Fed. Cl. 637, 639 (2014) (Stipulated Final Judgment awarding plaintiff $75 million). Two other Section 1498(a) cases also were settled: Advanced Aerospace Techs., Inc. v. United States, No. 12-85 (Feb. 8, 2012) (Stipulated Final Judgment awarding plaintiff $12.5 million, after trial, but before a final decision issued) and CANVS Corp. v. United States, No. 10-540 C, 2016 U.S. Claims LEXIS 1248 (Fed. Cl. Sept. 7, 2016) (Stipulated Final Judgment awarding plaintiff $14 million after claim construction).
  15. See The Boeing Co. v. United States, 86 Fed. Cl. 303, 322 (2009) (determining the royalty base corresponded to the value of external tanks sold to the National Aeronautics and Space Administration to which a 1.25% royalty was applied to derive “income flows” of “approximately $16.9 million”); see also Securitypoint Holdings, Inc. v. United States, No. 11-268C (Oct. 22, 2021) (awarding an interim royalty of $103,685,510).
  16. See 28 U.S.C. § 2501.
  17. See 31 U.S.C. § 1304.
  18. Michael B. Abramowicz, Cost-Plus Patent Damages, 26 Tex. Intell. Prop. L.J. 132, 145 (2018) (“If pharmaceutical companies expect the government to underestimate the risk significantly in a world in which §1498 is used aggressively, they may simply not develop a drug, regardless of the value[.]”).